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Legal Updates | New Tax Holiday Regulation

As part of the government's plan to boost investment in Indonesia, on 14th August 2015, the Minister of Finance issued Minister of Finance Regulation No. 159/PMK.010/2015 on Income Tax Reduction Facility ("Regulation 159"). This regulation revokes the previous regulations on the same issue, i.e. Minister of Finance Regulation No. 130/PMK.011/2011 as lastly amended by Minister of Finance Regulation No. 192/PMK.011/2014 ("Previous Regulation").


The tax holiday facility described in the regulation is a reduction of corporate income tax by anywhere from 10% to 100% of the corporate income tax payable, which could be applicable for five up to 15 years starting the fiscal year when the commercial production is commenced. Under certain circumstances, the tax holiday can be extended up to 20 years.

In general, taxpayers that are entitled to the tax holiday facility are:

  1. new taxpayers;
  2. taxpayers that are operating in pioneer industries;
  3. taxpayers that have a new authorised capital investment plan of a minimum of 1 trillion IDR (approximately $72 million USD);
  4. taxpayers that fulfil the debt to equity ratio set out in the relevant Minister of Finance regulation;
  5. taxpayers that submit a statement letter stating that they are able to deposit funds in Indonesian banks of at least 10% of the capital investment plan; and
  6. taxpayers that have the status as legal entities in Indonesia the approval of which should be obtained on or after 15th August 2011.

The three additional criteria italicised above did not exist under the Previous Regulation. Below are short explanations of some of the above criteria.

Operating in pioneer industry

Regulation 159 states that there are nine industries considered as pioneer industries (i.e. the newly-introduced industries are italicised), as follows:

    1. Upstream metal;
    2. Oil refinery;
    3. Natural oil and gas-based organic chemical;
    4. Industrial machinery manufacturing;
    5. Agricultural, forestry and fishery-based processing industries;
    6. Telecommunication, information and communication;
    7. Marine transportation;
    8. Processing industry that is a main industry in a Special Economic Zone; and
    9. Economic infrastructure, that is not under the Government and Business Entity Cooperation scheme.

Fulfil the debt to equity ratio set out in the relevant Minister of Finance regulation

Debt to equity ratio was lastly regulated under a Minister of Finance decree in 1984, which stated that the debt to equity ratio for tax purposes is 3:1. However, the enforcibility of the decree was postponed in 1985, and there has been no further regulation issued on this matter.

As reported in the news, the Minister of Finance plans to issue a regulation on debt to equity ratio. The proposed debt to equity ratio is 4:1 and it will be effective on 1st January 2016.

Procedure, prohibition and revocation of tax holiday facility

To obtain this tax holiday facility, a taxpayer has to submit an application to the Chairman of the Indonesia Investment Coordinating Board ("BKPM"). The chairman of BKPM and relevant ministers will conduct certain steps to review the application for the tax holiday facility, which would include looking at whether the industry of the taxpayer falls into the category of pioneer industries set out in Regulation 159.

If the application for the tax holiday facility has fulfilled the requirements, the Chairman of BKPM will recommend that the Minister of Finance provide the tax holiday facility. The Minister of Finance will then form a verification committee. Then the Minister of Finance will decide whether or not to grant the tax holiday facility to the taxpayer.

Unlike the Previous Regulation, Regulation 159 sets out certain prohibitions for taxpayers that have obtained the earlier tax holiday facility, and also sets out clear criteria as to when the tax holiday facility can be revoked from the taxpayer.

Transitional rules

If the Minister of Industry or the Chairman of BKPM has issued recommendations for the tax holiday facility between 15th August 2011 and 15th August 2015, and the Minister of Finance has not made any decision on the recommendations, they will be processed under the Previous Regulations.

Current development

As reported in the news, after the issue of Regulation 159, the government has already granted a tax holiday facility to four companies while several others are in the pipeline.


In addition to the fact that Regulation 159 offers more lines of business that may be entitled for the tax holiday facility, it seems to us that some of the requirements under Regulation 159 are also more lenient than those under the Previous Regulation (e.g. on the placement of deposit funds).

Considering the economic slowdown and the government's main objective in introducing the tax holiday facility, potential investors may want to seriously include this tax holiday facility into their investment considerations, particularly on manufacturing, marine transportation and infrastructure sectors due to the government's clear positive sentiment on these sectors.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 9th September 2015

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)